Political Scene: Greece’s Economic Troubles and the U.S.

“European politics are beginning to make all the scurrilous news about Republican Presidential candidates look tame,” says Dorothy Wickenden on this week’s Political Scene podcast. She’s joined by John Cassidy and James Surowiecki to discuss the politics of Greece’s economic troubles and how it may figure into politics and economics here in the States.

“In the U.S., there is effectively a bailout for states that are less economically successful,” says Wickenden. “If you look at the way that the federal government’s transfers work, money is effectively transferred from states like, say, New York or Connecticut to states like Mississippi or Alabama.”

Surowiecki, who wrote about the paradox of federalism in 2009, says that European countries like Greece face similar economic pressures as smaller states without a “real political system set up to facilitate those type of transfers.”

Existing without that system and with greater interconnectedness among global banks does not bode well for the ramifications of Greece exiting the European Union. “You get contagion in the financial markets, some of the big banks collapse, and we go back to the nineteen thirties,” Cassidy says. In fact, this week’s collapse of investment bank MF Global is emblematic of what could happen were Greece to default, he says.

Calling it “Lehman Brothers and Bear Sterns on a smaller scale,” Cassidy notes one key difference: “MF Global is small scale. Last week they existed. This week they don’t. It doesn’t matter to anybody apart from Jon Corzine and a few guys who have lost some money.”